Accounting Business Reporting for Decision Making

564 Accounting: Business Reporting for Decision Making

Integrated report

A relatively new development in the reporting of an entity’s performance and intentions is the integrated

report. The emphasis of the integrated report is on communicating the entity’s value creation over time.

A framework to help develop integrated reports was developed by the International Integrated Reporting

Council (IIRC) in 2013. The IIRC is a coalition of regulators, companies, investors, the accounting pro-

fession, the standard setter and other interested groups. Known as the International Framework, it has

been developed as a prototype for what it is hoped one day will replace separate reporting by relevant organ-

isations of such items as financial, environmental and social, risk, governance, etc. (hence the term inte-

grated). The benefit of integrated reporting (see reality check below) is to focus management’s thinking on

the longer term strategic impact of the entity’s operations. ‘An integrated report is a concise communication

about how an organisation’s strategy, governance, performance and prospects lead to the creation of value

over the short, medium and long term’ (IIRC 2013). Reporting on the integrating aspects of financial capital,

manufacturing capital, intellectual capital, human capital, natural capital, social capital and relationship cap-

ital will help management assess the value created by the organisation and the trade-offs made.

REALITY CHECK

Benefits of integrated reporting

Moving from a traditional annual financial report to a fully integrated report is a large endeavour for

any business. Research shows that reporting on environmental, social and governance (ESG) enhances

strategic focus and contributes to the long-term success of the organisation (Clark, Feiner and Viehs

2014). NAB introduced integrated reporting in 2010 with the goal of reducing the duplication of effort

and content that occurs when producing multiple reports.

They see the benefits as:

•   reduced reporting burden on internal experts

•   reduced ESG reporting burden by streamlining reports to contain the most commonly requested

information

•   increased understanding of integrated thinking by company leadership through presentations by

ESG analysts

•   clearer articulation of the organisation’s broader value creation

•   increased linkage between the organisation’s corporate responsibility agenda and business drivers

•   production of more useful and robust non-financial performance data.

The major challenges faced by NAB include understanding the links between business areas and

value creation and identifying the audience (who they are reporting to).

Source: The Integrated Reporting Journey: The Inside Story 2015, report prepared for IIRC by BlackSun PLC.

Performance evaluation of an entity is not restricted to that reported for external purposes. Internal per-

formance evaluation is also undertaken and can use information from a variety of sources — internal or

external to the entity, accounting or non-accounting, financial (quantitative) or non-financial (qualitative).

Balanced scorecard

Various performance frameworks have been developed to help entities focus on the factors that drive

their successful attainment of goals and corresponding performance measures. One such framework is

the balanced scorecard.

The balanced scorecard was developed by Robert Kaplan and David Norton. The balanced scorecard

framework is presented in figure 14.1, with an example applied to the hypothetical company Electronic

Circuits Inc (ECI) shown in figure 14.2. The balanced scorecard provides a set of performance measures

that reflect the entity’s goals and strategies. The framework includes measures from four perspectives.

1. Financial — How do we create value for our shareholders?


2. Customer — What do new and existing customers value from us?


3. Internal operations — What processes must we excel at to achieve our financial and customer objectives?


4. Innovation and improvement activities — How can we continue to improve and create value?